Column: Six lessons from the tax deal

By
Ezra Klein

In Washington, the temperature dipped into the 20s this week, which is evidently the point when hell freezes over: President Obama reached an agreement on the Bush tax cuts with the Republican Senate leader who said "the single most important thing we want to achieve is for President Obama to be a one-term president." Sen. Bernie Sanders, a socialist from Vermont, and Sen. Jim DeMint, an arch-conservative from South Carolina, threatened to filibuster the agreement. Liberal Democrats said they'd prefer a permanent extension of most of the tax cuts, and the architect of those cuts said the country couldn't afford anything more than a temporary extension.

It's been a little confusing.

But it's also been clarifying. The tax-cut deal, in which the Republicans will give the White House about $300 billion in stimulus in return for the White House giving Republicans about $130 billion in tax cuts for the wealthiest Americans, laid bare some old and new realities of how Washington works - and doesn't work - right now. It's worth going through them one by one.

1) No one really cares about the deficit. No sooner had Alan Simpson and Erskine Bowles completed their work on the deficit reduction package than Democrats and Republicans reached a bipartisan accord to add $900 billion to the debt. Republicans wanted their unpaid-for tax cuts for the rich, Democrats wanted their unpaid-for stimulus measures and both sides wanted the unpaid-for tax cuts for income under $250,000. I think it's appropriate to spend while the economy is weak and then repay when it's strong, but then, I didn't just get elected to Congress by promising to rein in spending.

2) Obama is better at the inside game than the outside game. Sarah Palin likes to ask the president "how that hopey-changey stuff" is going. The answer, it seems, is that the changey stuff is going well, but the hopey stuff is proving more troublesome. Obama might have campaigned in 2008 as the inspirational newcomer who had no patience for the broken ways of Washington, but he has governed like a Washington veteran with little patience for inspired outsiders. In health-care reform, in the stimulus, in financial regulation and in the tax-cut deal, Obama has been a tough negotiator able to move his agenda through a gridlocked Congress - but he has not been able to enthuse Democrats or inspire popular support for his initiatives. He has been prickly when questioned about it.

3) And he's not over health-care reform. Among the president's most passionate moments during the post-deal news conference was his long, impromptu scolding of dissatisfied progressives who're making this into "the public option debate all over again." Obama went on to complain that liberals were so focused on the public option that they lost sight of the rest of the health-care bill - which was much larger. And he's right about that. But it's also time for him to get over it.

4) Republicans really, really, really care about tax cuts for rich people. Many Democrats had been operating under the theory that Republicans would simply obstruct everything Democrats attempted, as that was the best way to make Obama a one-termer. At least when it comes to tax cuts for very wealthy Americans, that's not true. Republicans agreed to far more in unemployment insurance and stimulus proposals than anyone expected, and sources who were involved in the negotiations agree that the mistake Democrats made going in was underestimating how much Republicans wanted the tax cuts for the rich extended.

5) It's still Ronald Reagan's world, at least when it comes to taxes. The Sturm und Drang over the tax cuts for the rich obscured the Democrats' massive capitulation on the tax cuts for everyone else. Even the party's liberals had accepted Obama's argument that the tax cuts for income of less than $250,000 - which includes the bulk of the Bush tax cuts - should be permanently extended. Another way of saying that is Democrats had agreed that the Clinton-era tax rates were too high. If you put it to most Democrats that way, they'd protest vigorously. The economy boomed under Clinton, and the Democratic Party is proud of the efforts it made to balance the budget. But Democrats are so terrified of being accused of raising taxes that they've conceded to the Bush tax rates for 98 percent of Americans.

6) We need tax reform, now more than ever. The end result of this deal is going to be an even weirder tax code than we have now - and the one we have now is pretty weird. We're extending old tax cuts and credits and adding new ones. Some of those may be extended further. Businesses won't want to see deductions for investments expire, and workers won't want to see the payroll-tax cut expire, and the super-rich won't want to see the tax exemption for estates up to $5 million expire. There are so many constituencies fighting for so many breaks that the only hope we're going to have when we actually do need to reduce the deficit - which isn't yet, but will be soon - is to start from square one on the tax code.

"Democrats wanted their unpaid-for stimulus measures and both sides wanted the unpaid-for tax cuts for income under $250,000."

Really neither side wanted this, but both felt like they had to say they did.

The Republicans only put this out to get what they really wanted, the tax cuts for the rich.

The Democrats would rather have these hundreds of billions spent on high multiplier and high return stimulus, like aid to states, infrastructure, education, alternative energy, basic science and medicine, etc., or at least used to reduce the deficit.

But neither side wanted politically to be accused of opposing tax cuts for the middle class.

The overriding lesson is that the Democrats in general and Obama in particular are not very good at that lawmaking thing or that political thing.

If they'd passed a budget resolution early in the year, they could have passed a good tax bill through reconciliation. If they brought the tax cuts up before the election, they could have passed a good tax bill. If they were capable of sticking to a coherent message and fighting for what they believed, they could have passed a good bill.

Running scared, buying into Republican talking points, fostering a perception that you're a weak leader, attacking your base (especially when you have facts such as the history of social security and medicare wrong), etc. are not the route towards achieving the goals they purport to believe in.

On #3, can I just reiterate my question again to Ezra about why Obama answering a reporter's question in a measurable tone, and expounding at length for maybe a unique moment, continues to be characterized as some sort of intemperate outburst?

He answered a question. He made a valid point. It needed to be said. If he walks around acting like a wounded puppy, then maybe you can tell him to drop it without sounding weird.

But while we're at it, could I pitch you about writing a post about how the liberal activists, especially writing at FDL and Kos, are without a doubt using the public option fight to completely trash the health care bill? Maybe they're the ones who should be getting over it since it's actually amounting to a surrender in the face of people who want to repeal the bill.

Remembering how Howard Dean and others acted in December 2009, I think Obama was entitled to give just one answer about the issue during a press conference, especially when that dynamic is relevant to today.

I agree, except for on the "tough negotiator" part. He didn't get anything in this package that either Republicans weren't already for (payroll tax cut) or were going to fold on anyway (UI extension). On HCR, he gave away the store on the implementation date, such that Republicans have 4 years more to make mischief and talk down the bill while most Americans see no benefit. To the extent anything does finally get implemented, it'll be by President Palin.

So President Obama dealt away the public option in secret meetings with insurers and doctors, lied about it for several months while we fought as hard as we could for what he said he believed in, and he and you wonder, "Why the hard feelings?"

This is in large part because Obama is too scared to fight that narrative and ideology using the great power of his bully pulpit. In fact, he constantly acquiesces to it.

Reagan, on the other hand, fought up, down, and sideways, constantly, to change the ideology and narrative, and as a result he had a profound effect on this country for the last generation. Unfortunately, the effect was deeply harmful and corrosive, but it shows how much a president can change this country if he's not afraid to use his bully pulpit to change the ideology and narrative.

Your post is plausible except the part about
Dems wanting to reduce the deficit. As I told Ezra before he did the mega postings on deficit reduction commissions, nobody cares about the deficit. (except Bernanke)

fbacon2:
Obama's biggest flaw is the failure to manage his supporters' and the public's expectations. So, maybe the "public option" people did lose sight of the forest for the trees, but Obama never communicated the rationale behind his backroom dealing or that the public option was, at best, a bargaining chip. He waffled and led people to believe it mattered to him. He also never explained why he began health care reform by "negotiating against himself" using the old Republican plan as the starting point and not something like, say, Medicare for all or some other single payer system.

This failure to communicate, this failure to take a stand when it could have made a difference, has replayed over and over again. So, he can point the finger all he wants, but it's not going to earn him any support. He just expects that people will support him no matter what he does, and he takes umbrage when they don't.

Lastly, re: the FDL and "public option" people. (If you pay attention to DailyKos, you'd see that there isn't a uniform opinion on the public option and the Kossacks frequently bash FDL.) There was a place for the public option advocates, even if they were at times impractical. That was their issue. It is understandable that they're disillusioned. Outside of the pundit class, I'm skeptical of how instrumental "public option people" were (or will be) either in turning out voters or in, as you suggest, playing into the hands of the repeal people.

"This failure to communicate, this failure to take a stand when it could have made a difference, has replayed over and over again."

The bigger problem is failure to listen. You think W. getting two terms comes from an engaged and informed public? After 8 years of staggering incompetence, swing voters were ready to try something new, but since Obama didn't make everything magically better in 2 years, it's unsurprising swing voters are ready to vote the country over a cliff again. Also unsurprising are the liberals who are almost as uninformed and prone to falling for the narrative fed to them by pundits (e.g.: "he caved, he can't communicate, he has no accomplishments, he broke his promises" etc.)

This clip sums up a lot about politics and liberals' dedication to being righteously misinformed: http://www.youtube.com/watch?v=WAlkfYczY4c

No one seems to care about the New, 35% Tax
on inheritance, which was already tax'd, but now the person who inherits the money
will Also have to pay 35% tax on it.
Unfortunately, sometimes this means they have to sell the business,property, etc.. in order to pay the 35% tax which is on all the assets.
Sounds like this wasn't thought-through very well.

"the only hope we're going to have when we actually do need to reduce the deficit - which isn't yet, but will be soon - is to start from square one on the tax code."
Sure, that'll happen. More likely the Republicans - with an assist from "moderate" Democrats - will use the deficit as an excuse to eliminate or severely reduce Social Security. We all must make sacrifices, you know, unless we're really rich.

ohioan...no one cares because no one except people who inherit over 5 million dollars will ever pay a cent on the estate tax.

and thank you CaptainMcGlew. I'm dismayed by the misinformation being spewed by progressives all over the internet (and tv) about not only the tax deal, but the President.
Mostly it is in the form of "well if he had done this...." or "If only the President had said this...." except what they want him to have said or done he has said or done, they were just not paying attention.
If i was the President I'd be a bit frustrated at progressives/libs too.

"Obama went on to complain that liberals were so focused on the public option that they lost sight of the rest of the health-care bill - which was much larger."

That's always been my failing as a human being. Things that haven't happened yet are always so difficult to see. Wake me up in 2014 so that I can pay for my mandated health insurance.

Of course, maybe my hindsight is bad too! I seem to recall this from a Democratic Primary debate in Los Angeles, Jan. 30, 2008:

CLINTON: [Obama & I] do have differences on health care. I believe absolutely passionately that we must have universal health care. It is a moral responsibility [to] move us to universal health care.

OBAMA: About 95% of our plans are similar. We both set up a government plan that would [cover] pre-existing conditions. We both want to emphasize prevention. But I emphasize reducing costs. If we provide subsidies to those who can’t afford it, they will buy it. Sen. Clinton has a different approach. She believes that we have to force people who don’t have health insurance to buy it, or there will be a lot of people who don’t get it. But if you are going to mandate the purchase of insurance & it’s not affordable, then there’s going to have to be some enforcement mechanism that the government uses. And they may charge fines to people who already don’t have health care, or take it out of their paychecks. And that, I don’t think, is helping those without health insurance. That is a genuine difference.

Change that you can believe in, in that he's changed his position so much you can believe he doesn't really stand for anything.

"Even the party's liberals had accepted Obama's argument that the tax cuts for income of less than $250,000 - which includes the bulk of the Bush tax cuts - should be permanently extended. Another way of saying that is Democrats had agreed that the Clinton-era tax rates were too high."

Perhaps that's why Kevin Drum noted cryptically the other day:

"Looking at American politics from a 100,000-foot level, conservatives have won. Programmatic liberalism is essentially dead for a good long time, and small bore stuff is probably the best we can hope for over the next 10-20 years — though social liberalism will continue to make steady advances. I reserve judgment on whose fault that is."

Which is all to say this slogan I saw the other day is as good as dead:

Tax the Rich. Rebuild the Nation.

Forget about that. Besides if you haven't seen the rather timely news, they are going to be giving their billions away (wink-wink) very soon...

And also forget about paying for the Bush Wars by eliminating the Bush tax cuts. Who is going to pay for that? I don't know, maybe the Chinese...

In other words folks, hang on to your seats. Liberal and Conservatives have found common ground: We are going to starve the beast. And that sounds like a real winner, unless of course, you are spending your paychecks thinking Social Security will be there for you.

If this is true, please explain why the Democrats took untold political hits in order to get $500 in Medicare savings and $500 in new revenues in the health reform bill?

Honestly, wouldn't that bill have been much easier if it had been financed the same way the Medicare Drug bill was by Republicans? By the deficit?

It's very clear that Democrats care about the deficit. A lot.

What we saw here, I think, was Democrats refusing to unilaterally disarm. You can't have a situation where Republicans don't have to pay for their priorities, but Democrats do. And a situation where Democrats are willing to deficit finance in the short-term for stimulus purposes.

Republicans had decided to deficit-spend hundreds of trillions on the wealthy. It would be utterly ridiculous for Democrats to not throw in some short-term stimulus that they could get Republican votes for, in exchange for a vote they knew they had to take on middle class tax cuts. That ended up being payroll tax cuts.

Seriously, these guys found $1 TRILLION in offsets on the only major long-term piece of legislation they passed. Are we pretending that didn't happen?

I agree that liberal bloggers and activists are sometimes very misinformed and do not understand the value of compromise in getting things done. But when you have the House Democratic caucus chanting "Just say No!", you know it is not just liberal bloggers and activists, there is something to be concerned about with the way this deal has been handled and its provisions.

@pbasso_khan: thanks for the reply. A few things...
I would be more sympathetic to the argument about communications failures and managing expectations if I hadn't been convinced over the last two years that the progressive infrastructure -- a tool to amplify any administration message -- had tuned Obama out and become dedicated to sticking its fist down his throat. Certain erroneous memes have become solidified as hard truths with the help of people with large megaphones and dedicated audiences, and at this point, I'm afraid Obama will keep talking past some of his alleged supporters until there's a new villain for them to focus on.

It's hard to accept a diversity of opinion on sites like Kos when the sense of the prevailing attitude is one of hostility and belittlement to the achievements of the administration. December 2009 was a seminal moment when purported responsible figures and opinion leaders lost their tempers and demanded a health care bill, which they had made synonymous w/ the public option, be killed. They've never adjusted, recalibrated, or shown any contrition, but they decided instead to double down. That's essentially how I've seen the debate on the left lead us to this point, which is why Obama was spot-on for making the public option analogy at his presser.

Some of these erroneous memes are implicit in your comment: persistent communication failures, a lack of fight, or any real commitment to progressive goals, wrapped around post hoc narratives like demanding single payer in advance. We went in with something very close to what Obama campaigned on and what Dem-leaning thinkers had been proposing since the early part of the decade. That was always going to be our starting point. And Obama would've signed a public option into law had Lieberman not knifed it in the back. But when the "progressive" position became choosing between HCR and the public option, that's where I got off. When you look at the Scott Brown election and the necessity of getting HCR through the Senate before Xmas, we can see the WH was absolutely right in not dragging out the process any longer.

Lastly, on whether "public option people" are going to prove decisive, I think it's important to give the progressive commentariat credit for creating an echo chamber and providing air cover. When they're turned against us, we fight at diminished strength. What I can't stand from the blog community is the lack of responsibility shown for their own words and actions. Either these forums and outlets have meaning or they don't. I take DailyKos seriously as a potentially powerful tool, which is why I'm so frustrated with it. It seems like bloggers dismiss their own relevance when they acknowledge, deep down in their subconscious, that they've been in error.

You may be the last person outside of the President and Pelosi who believes that HCR will result in deficit reduction. I don't even think Ezra can say that with a straight face anymore, except when he's on tv.

Guess you'd have to count me in with theorajones on believing the CBO scoring of health care reform. It does at least think about reducing costs, that's why Republicans were able to make so much hay out of Medicare "cuts" (even though benefits were not cut in Medicare Parts A&B).

This bill is a wet dream for Republicans, who love tax cuts for anyone, anywhere, anyhow. The 2% payroll tax cut is not a "compromise" on their part. They love it! I have not met a single Republican who dislikes the idea. Heck, most would be willing to cut payroll taxes to zero tomorrow, for both the employer and employee. On the other hand, Democratic opinion on "our" part of the deal ranges from mild support to outright horror.

Obama's compromise was to give Republicans something they love and we hate, in exchange for something they merely like and we have mixed feelings about. How the heck is that a winning plan? Exchanging the tax cuts for something Republicans hate and WE love would be a good compromise, as long as it was on a similar scale. How about Waxman Markey? As distastful as I would find it, I would exchange the tax cuts for a decent energy policy.

Ezra, good list, but you forgot #7: Trickle-down is the MYTH that WON'T DIE. When pushed to come up with a rationale for extending the high-end tax breaks, the best thing that supporters can say is, "jobs." Yet, the CBO put it dead last in terms of effectiveness on its list of stimulus proposals.

Probably the best point in the post is that Dem's earning under the $250K mark still want to keep their Bush tax cut. That's by far the biggest deficit buster of the deal. And I'm one of them. We are so seduced by OUR Bush tax cut we only argue against the $250K+ crowd. Simply returning to the Clinton era tax cuts would hardly affect half of American households, barely affect 3/4's of American households, help the deficit, and maybe provide some room for real deficit spending.

"... the only hope we're going to have when we actually do need to reduce the deficit - which isn't yet, but will be soon - is to start from square one on the tax code."

Someone once asked me why I was a moderate and how I defined moderates as anything but squishies with no true beliefs.

I said there are two versions of moderates.

Version 1 :
We do not "tow the line."
Every issue is separate.
A moderate Democrat can be pro-choice and pro death penalty.
A moderate Republican can be for reducing government spending yet believe spending more on education is a long-term benefit.

Version 2 :
Moderates do not "tune out" based on the name.
There are many who would rant and rave at any point made by Ezra.
Definitely there are others that regardless of the common sense will state that Rush Limbaugh is wrong.

What Ezra wrote there I am in complete agreement.
Truthfully, the tax code is so messed up with so many constituencies it pretty much would need to be scrapped and written from scratch.

Hell, I read an idea ( from an extreme progressive ) that makes a certain amount of sense.

Set the top tax rate to the unemployment rate.

i.e.
Corporate Taxes would be 25% plus the unemployment rate - 4%.

SO it is in their interest to keep unemployment down. Because when it is 9% they are paying 30%, if they actually got it down to 0% they even get a break!!

You know what You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price check http://ow.ly/3akSX .If you have health insurance and do not care about cost just be happy it and trust me you are not going to loose anything!

The irony of Demint and Sanders both opposing this is underscored by the fact that both Vermont and South Carolina, two mostly rural states are so opposite in most social measures. Vermont is quite well managed, while SC is wallowing in poverty, and unemployment. A comparison shows how Red State economics is really destructive.

It's not so much wanting the tax cuts for the rich extended as it is making everyone pay fairly for the massive spending increases they demand. While Klein calls the new health care law "deficit-neutral", it is a huge spending increase. It must be covered by new taxes. By stealing from the rich to give to the poor, we imagine that we can find all of the money we need.

It's simply not true.

What many hyper-liberals and progressives forget is that while many people aren't rich, most people do dream of being rich. And in that dream about the day they get rich, they aren't just going to have their money taken away from them to be given away to others. We have entrepreneurs working 80 hour weeks trying to create the next economy, invent the next level of product that will make the world better. They might not be rich yet, but they will be creating a lot of value.

The top 2% might be you soon. 90% marginal tax rates aren't going to look so good from up there.

Let's pay for this economy together. If I make $1M and my taxes go up 10%, that's an extra $100k for the USA. If I make $100k, that's $10k. If I'm making $100k, I might not feel so bad for the guy making $1M, but it just doesn't feel right to me to demand new services and wars and plans to redistribute his wealth to others without touching mine. The 2% aren't here to pay for the errors of the 100%, we're all in this together.

All of the tax cuts should have been expired and the employer payroll tax set to 0%. That's the recipe for job growth. All we're trying to do with this incredibly stupid plan is set ourselves up for the next bubble.

Bush Tax Cuts versus the college tuition tax credit, payroll tax holiday, and jobless benefits extensions are annual fix to long term problems facing working and not-working American middle and lower class.

In developing partial solutions for long term jobless growth, both long term economic and financing measures should be applied simultaneously to reduce burdens on the middle and lower class, while fixing the economy. Reducing wealth transfers from households, redeploying household tax subsidies, and creating broad-based economic incentives for households could help reduce tax burdens on the middle and lower income class.

On wealth transfers, government could seek to reduce the amounts of income and sheer capital transfers from households for an equitable redress of the problems brought on by Government expenditures, directly through the budget and indirectly through facilitating transfers as subsidies from households to the corporate sector.

Government transfers of household incomes to companies in mining and energy should be returned in the form of lower individual taxes. The U.S. Tax Foundation in its November 22, 2010 publication reports some $40 billion are transferred from households to fossil fuel and green energy companies plus foreign governments each year. These amounts should be weighed against such options as eliminating mortgage interest deductions.

The broad-based building and construction decline could use incentives that raise investment and create jobs. Existing subsidies to the business sector could be reduced and households could be granted a standard deduction for each property owned in order to maintain, repair, and make homes energy efficient as households see fit. A similar approach could be applied to commercial properties used to provide housing to households. Households would spend in the investment streams to keep America’s stock of housing from falling into disrepair.

On deficit reduction, a Tobin’s transactions tax to help reduce the government payment of interest on the national debt could be applied. Lower debt servicing costs could also strengthen the dollar as an international reserve currency in the world economy.

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